Predatory Pricing

Predatory Pricing. An incumbent firm may use predatory pricing to price below their own AC curve so that both they and rivals make a loss.

Potential firms will not enter the industry if they think they will make a loss. The incumbent firm must be deep-pocketed to do this, they must have the funds to be able to make losses. However, the losses cannot be sustained in the long-run, this tactic is a short-run tactic only. Also, predatory pricing is illegal, so the incumbent firm must avoid being caught by authorities.